Assessing the risks of falling behind

The webinar highlighted how the majority of crypto firms aren’t yet in a position to fully understand the critical nature of sustainability disclosures. This can have a profound impact on their future prospects and the growth of their business and supplier network.

There are a number of reasons for this lack of readiness. One is resource constraints. Compared to their larger counterparts in financial services, many crypto firms operate with leaner teams and fewer resources. This makes it much harder to dedicate time and expertise to emerging disclosure requirements.

Even where firms have the resources and desire to act, there is then often uncertainty about what actually matters.

Most existing sustainability frameworks have been designed specifically for traditional industries. They don’t easily translate to crypto-native business models, particularly those involving decentralised or pseudonymous systems. Without clear standards and guidance tailored to blockchain-related products and services, companies struggle to prioritise and measure the relevant sustainability metrics.

Companies are also having to contend with a complex and evolving regulatory landscape. And regulatory approaches are diverging. The EU has introduced a prescriptive  disclosure regime for certain sustainability indicators within its Markets in Crypto-Assets (MiCA) regulatory framework. The UK, however, has looked at what MiCA white papers mandated and has decided not to follow suit, instead adopting a more cautious approach.

There is no right or wrong here; issues that were a major concern three or four years ago – such as Bitcoin’s energy consumption – are now less of a focus, or being reframed within a broader sustainability context. For small compliance teams, the practical challenge is therefore to monitor, and understand, how sustainability expectations differ across jurisdictions, asset types, and business models.

These challenges are combining to slow down progress. But firms that delay action risk much more than penalties for regulatory non-compliance. They may well also miss the opportunity to build credibility with investors and partners, access new markets, differentiate themselves in an increasingly competitive sector, and ultimately reduce friction when it comes to institutional due diligence and procurement processes.

How should crypto firms prepare for sustainability disclosure requirements?

The key to keeping in front of the compliance curve is to start now.

By developing a clear sustainability strategy early, crypto firms can meet evolving stakeholder expectations as well as regulatory deadlines, while avoiding a last-minute, resource-intensive scramble. By getting the ducks in a row, they can also respond more efficiently to emerging client, investor, and counterparty disclosure requests.

Interestingly, the crypto sector has a distinct, built-in advantage.

While established sectors have entrenched, complicated global supply chains developed over decades, crypto firms have lighter, more digitally native ones. This softer footprint enables firms to more easily bake in sustainability requirements from the start – but, as a sector, we’re still not generally doing this.

At the outset, and as discussed at length in the webinar, it’s crucial for crypto firms to remember there are three levels of disclosure to now consider:

• Asset/project level: The UK’s crypto regime that will be implemented in October 2027 is (for now at least) silent regarding a detailed, asset-level sustainability disclosure framework. However, MiCA has introduced sustainability disclosure requirements for certain crypto-asset white papers and crypto-asset service provider (CASP) disclosures. These requirements may affect non-EU firms where crypto assets are offered to the public in the EU or admitted to trading on an EU trading platform.

• Corporate/entity level: At this level, the position depends on where the corporate entity is incorporated. UK entities may be subject to existing frameworks, such as TCFD-aligned disclosure requirements, while if a crypto company sits within a group with a meaningful European presence then EU disclosure rules can apply too. It should be noted the UK government has also been developing UK Sustainability Reporting Standards based on the ISSB standards, while the Financial Conduct Authority (FCA) has already consulted on aligning listed-company disclosure rules with those standards for accounting periods beginning on, or after, 1 January 2027. Whether any specific regime bites – and the depth to which it does so – depends on a company’s headcount, turnover, balance sheet, and group structure.

• Indirect requirements at the counterparty level: It’s also important to note that even if a crypto firm isn’t directly required to report, it may well still be indirectly impacted. Larger organisations already subject to sustainability disclosures must gather data from their partners, suppliers, and clients. This means a firm’s VC, financing bank, or client may require them to provide disclosure information as part of their own compliance or reporting processes. In short, sustainability expectations can reach you before the regulator does.

With these three levels in mind, there are a number of actionable steps crypto firms can take to ensure they comply with regulatory requirements, meeting timelines as well as the enhanced expectations of counterparties, clients, and financiers. 

• Assess the firm’s current position – and do so honestly: Firms must openly assess and understand where they are, what they already know, and what they don’t. Many are often stronger in some areas, such as governance, than they are in others, like emerging environmental metrics. This exercise must include mapping which sustainability-related data the firm already collects, which requests have been received, and where responsibility for disclosure sits within the organisation.

• Identify key stakeholders as well as their current, and future, needs: It’s important to carefully consider who is likely to request sustainability information, whether that’s clients, investors, banking or payment partners, trading venues, or regulators. Getting to grips with their expectations will enable a firm to focus and properly prioritise its efforts.

• Map out any gaps or opportunities: Firms should also work out where improvements are needed, as well as areas in which they can boost their strategic advantage. This should include assessing the firm’s exposure to EU requirements, UK corporate reporting developments, investor expectations, and institutional procurement standards.

• Start building an appropriate framework: Even putting a relatively simple internal framework in place can help a firm to better structure its approach and prepare for future requirements. Getting started doesn’t require immediate perfection – it just requires awareness and action. A firm’s initial framework doesn’t need to be overly complex; it should just provide an accessible view of material issues, data ownership, disclosure responsibilities, governance oversight, and the firm’s approach to cascading external requests.

Sustainability disclosures are becoming part of the infrastructure of financial market access. For crypto firms eyeing expansion, the question is not whether expectations will apply, but how they will apply across issuers, CASPs, counterparties, and jurisdictions.

Acting now can help firms to mitigate risks on the horizon but also ensure that they are well positioned for long-term institutional credibility, partnerships, and profit.

FAQ

Why are sustainability disclosures becoming more important for crypto and digital asset firms?

Sustainability standards are becoming increasingly intertwined with the global financial services sector. They are no longer just “nice to have”.

While we may have started off as a new, independent sector – an alternative to the incumbent financial system – this is no longer the case. We’re becoming an important part of the future financial system, and this progression will quickly change people’s views and perceptions of what we need to be doing.

Commercial pressure to look at sustainability seriously is ramping up now. For crypto firms seeking the institutional clients, banking relationships, investment, or indeed EU market access to write the next chapter of their growth story, it’s an increasingly crucial consideration.

Is there a difference between sustainability reporting and sustainability due diligence?

Typically, sustainability reporting is done retrospectively for a defined period of time – normally one year. It’s always backwards looking, but must be anchored in consistent data that’s reported year-on-year in order to draw out trends over time.

Due diligence can be considered more of a spot check; it may be during the middle of the year, and it may not be in line with sustainability reporting –  rather it’s a point-in-time assessment of what a company is doing in terms of sustainability.  It can help to identify areas of opportunity – for example, are there other products or services that can be developed – and it can also unearth specific areas of risk, such as poor governance or resilience risk.

Ultimately, crypto and digital asset firms need to be thinking about both.